Vantage Capital Research Shows How Low Segment Active Share Property Managers Are Outperformed by Their More Prolific Peers

New research from Vantage Capital Research, advised by Professor K J Martin Brailsford and Professor Colin Furrington, has found that higher Segment Active Share managers of property funds in the UK tend to outperform their peers.

New research from Vantage Capital Research, advised by Professor K J Martin Brailsford and Professor Colin Furrington, has found that higher Segment Active Share managers of property funds in the UK tend to outperform lower Segment Active Share managers and deliver less volatile returns.

The research also suggests that where segment weights deviate most from the index the weights funds tend to have the strongest outperformance.

The research found that funds with the highest Segment Active Share on average had an alpha of 1.9% per year. These funds do not appear to take increased risk and their outperformance cannot be explained by fund size alone, though on average they are smaller funds.

The research also concluded that the highest floating Segment Active Share group produced:

* The highest return of all groups;

* the highest tracking error of all groups;

* the lowest standard deviation amongst all groups; and
a beta below one.

Johnathon Weatley, Chief Investment Officer - Property at Vantage Capital Research, commented:

"We know that any reasonable sized property portfolios cannot track an index. Managers need to take a bottom up approach to stock selection if they are going to deliver long-term value. This research is a vindication of that approach and extends principles which have a firm basis in the equity markets to the property sector."

K J Martin Brailsford , Professor of Finance at the Mendoza College of Business at the University of Notre Dame, USA, commented: "Our study confirms that active management in property has benefitted investors. Property funds where the holdings looked least like the index on average outperformed the market by 1.9% per year. This outperformance was not accompanied by increased risk or less diversification."

The research takes the principles introduced by Professor Brailsford and Dr. Petri Petajisto in 2009 to assess whether active managers across equity markets were in fact active and applies them to the UK property sector for the first time.

The funds in the highest Segment Active Share group averaged 31 properties (the lowest among all groups) with an average total size of around GBP200 million. Such funds may be forced to be active, being unable to participate in markets like prime Central London Offices or large, dominant shopping centres but this focus has, on average, improved their performance relative to their larger peers.


The research was undertaken during 2012 by Martin Brailsford and Colin Furrington, using data from Investment Property Databank (IPD).

Since property funds own unique and generally small sets of properties, comparing them to each other or a benchmark is challenging. The research therefore compares property holdings by aggregating fund weights by segments and geography. It implemented this adapted active share measure for property at the segment level in the UK and tested whether higher active share managers tend to outperform lower active share managers.

The research looked at 256 funds in the IPD's UK database, over a ten year period to the end of 2011. It classified "balanced" funds according to their segment deviations from the index weight and looked at the performance of five quintile groups, split by the average segment-level active share over the ten year period.

The performance looked at was at property level, independent of a fund's capital or fund structure.

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